Charges against food mogul shock Italy

Parma, Italy  Taking over his father's salami business as a 22-year-old college dropout, Calisto Tanzi used key innovations -- sterile packaging and sports marketing -- to make milk more than a bland commodity.

The result was an Italian food powerhouse called Parmalat that charged through the 1990s with explosive global sales growth and acquisitions.

The growth coincided, however, with the beginning of what Tanzi and other executives have now told prosecutors was accounting trickery that helped bring the company down -- and raised serious questions about how solid the foundation for the success story really was.

On Friday, doctors examined Tanzi, who has been in a Milan jail for a week, to determine whether he's healthy enough to stay in prison or should be put under house arrest as his lawyers have asked. Investigating judges grilled other Parmalat officials, outside lawyers and auditors for the first time after their detentions Wednesday on suspicion of committing fraud that led to Parmalat's bankruptcy.

Tanzi, 65, and his family were royalty in a place where food is king -- Parma, the gastronomic capital of Italy. It's the home of Parma ham, Parmesan cheese and Barilla SpA, Italy's biggest pasta maker.

After the death of his father, Melchiorre, Calisto dropped out of college in 1961 to take over the family's cured meat business, one of the region's many small artisan firms.

As sales grew in the 1970s, Parmalat started sponsoring sports heroes and events -- such as Formula One driver Niki Lauda and the 1975 skiing World Cup to further define its brand. It went public in 1990, with the Tanzis keeping 51 percent of the shares, and bought operations in France, Germany, the United States, Britain, Brazil and South Africa.

Yet amid all the growth, Tanzi and his top executives began diverting money from the firm, court documents said they told prosecutors. Tanzi himself has admitted he shifted up to $620 million over seven or eight years, some to the family's travel businesses. Meanwhile, the company began setting up subsidiaries with what appeared to be plentiful assets that bolstered the company's balance sheet.

That made the company's heavy debts look less threatening, since they were balanced by apparently plentiful liquidity. Auditors' inquiries were answered with fake letters, prosecutors say. The truth came out on Dec. 19, when Parmalat revealed the Cayman Islands Bonlat subsidiary didn't have $5 billion it had claimed.